Submission on Taxation (Neutralising Base Erosion and Profit Sharing) Bill

Transcription

1 Submission on Taxation (Neutralising Base Erosion and Profit Sharing) Bill Contact: Eleanor Vermunt Legal Adviser Human Rights Commission 1

2 Submission of the Human Rights Commission to the Finance and Expenditure Committee on the Taxation (Neutralising Base Erosion and Profit Shifting) Bill Background and Overview of Submission 1. The Human Rights Commission ( the Commission ) welcomes the opportunity to provide this submission to the Finance and Expenditure Committee on the Taxation (Neutralising Base Erosion and Profit Shifting) Bill ( Taxation Bill ). 2. The Commission is New Zealand s National Human Rights Institution (NHRI). NHRI s form part of the United Nation s human rights system by promoting and monitoring the domestic implementation of international human rights standards. The Commission is accredited as an A Status NHRI, meaning that it meets the highest standard of practice and independence set by the Global Alliance of NHRIs and the UN High Commissioner for Human Rights. 3. As an independent Crown Entity, established under the Human Rights Act 1993, one of the Commission s primary functions is to advocate and promote respect for, and an understanding and appreciation of, human rights in New Zealand society. 1 In order to carry out its primary functions, one of the Commission s roles is to promote and monitor compliance by New Zealand with, and the reporting by New Zealand on, the implementation of international instruments on human rights ratified by New Zealand The Commission supports the proposed measures under the Taxation Bill to limit the ability of multinational corporations to undertake aggressive tax planning strategies to pay little or no tax around the world, otherwise known as base erosion and profitshifting (BEPS). The Commission commends and encourages further cross-party support for the Bill. 5. As stated in the explanatory note to the Bill: BEPS strategies distort investment decisions, allow multinationals to benefit from unintended competitive advantages over more compliant or domestic companies, and result in the loss of substantial corporate tax revenue. More 1 Human Rights Act 1993, s 5(1). 2 Ibid. s 5(2) (kc). 2

3 fundamentally, the perceived unfairness resulting from BEPS jeopardises citizens trust in the integrity of the tax system as a whole. 6. The Taxation Bill represents an encouraging domestic response to the G20/OECD project to combat BEPs. At the same time, the Commission considers that the Bill strengthens New Zealand s commitment to international human rights by, even if indirectly, addressing calls by the United Nations (UN) human rights system for States to step up their efforts to combat tax evasion. Put simply, when multinational corporations engage in aggressive tax planning strategies to evade tax, it not only results in unfairness and the loss of public trust in the integrity of the tax system, but it deprives the government of the resources it needs to fulfil its international human rights obligations. 7. The Commission s submission highlights what these international human rights obligations are with regard to tax policy and outlines why the Taxation Bill is a positive development in the progressive realisation of economic and social rights. The submission concludes with recommendations. Human Rights and Tax Policy Human rights obligations in relation to tax policy 8. In 1978, the New Zealand government agreed to be bound by the International Covenant on Economic, Social, and Cultural Rights (Covenant), a multilateral instrument that protects the most fundamental needs of citizens including the right to health, the right to work, the right to education and the right to an adequate standard of living including food and housing. Under the Covenant, the government agreed to take steps... to the maximum its available resources, with a view of achieving progressively the full realization of the rights recognised in the present Covenant by all appropriate means, including particularly the adoption of legislative measures Similarly, the government has agreed under the Convention on the Rights of the Child and the Convention on the Rights of Persons with Disabilities to take measures to the 3 Article 2(1). 3

4 maximum extent of their available resources to implement the rights recognised in the Conventions With these provisions, the government s decisions about how it will mobilise resources and how it defines its spending priorities become human rights issues. In the words of the UN expert on extreme poverty and human rights tax policy is human rights policy. 5 Olivier De Schutter, member of the Committee that monitors the Covenant provides three reasons for this: Taxation allows States to mobilize resources in order to invest in health, education, housing, social protection, electricity, and water provision, or transport infrastructure, all of which are indispensable for the enjoyment of human rights of the Covenant. It also allows States to redistribute wealth from the richest parts of the population to the poorest. Finally, the shaping of taxation policies are central to democratic self-determination, and therefore may have to take into account the human rights principles of participation and accountability Tackling tax evasion is an important channel through which tax policies can contribute to the better realisation of human rights. The Organisation for Economic Cooperation and Development (OECD) has found that revenue losses from BEPS are conservatively estimated at up to USD 240 billion annually, or the equivalent of up to 10% of global corporate income tax revenues. 7 Other estimates are as high as $3 trillion in lost worldwide revenue each year. 8 In New Zealand alone, reports estimate that the amount of tax lost through tax avoidance by multinational companies is up to 4 Convention on the Rights of the Child, Article 4; Convention on the Rights of Persons with Disabilities, Article 4(2). 5 Report of the Special Rapporteur on extreme poverty and human rights, Philip Alston, to the 29 th session of the Human Rights Council, A/HRC/29/31 (26 May 2015), para 53, 6 Olivier De Schutter, Taxing for the realization of economic, social and cultural rights, Institute for Interdisciplinary Research in Legal sciences, May 2017, O.DeSchutter3.pdf Report of the Special Rapporteur on extreme poverty and human rights, Magdalena Sepulveda Carmona, A/HRC/26/28 (22 May 2014) para 58 citing The Cost of Tax Abuse, Briefing paper on the cost of tax evasion worldwide, Tax Justice Network, November

5 $500 million. 9 As Green Party leader James Shaw put it, that s enough for about 9,259 nurses, 7,601 police, and 10,498 primary school teachers In recent years, the UN human rights system has become more active in assessing the human rights impacts of tax policies. In May 2014, former UN expert on extreme poverty and human rights, Magdalena Sepulveda Carmona, presented a study on tax policy and human rights to the UN Human Rights Council (See Annex 1). The report reminded States that appropriate redistributive measures through taxation and other fiscal policies must be seen as an integral part of a commitment to ensuring full respect for human rights across society. The report highlights tax as a key tool when tackling inequality and providing resources for poverty reduction: Although taxation policy may seem far removed from the daily problems of the poor, it in fact plays a major role in determining and adjusting levels of inequality in a society and in funding essential services, social protection and poverty reduction measures; it is therefore central to realizing the rights and defining the opportunities of people living in poverty The report calls on States to strengthen revenue raising by tackling tax abuse: Tax abuse is thus not a victimless practice; it limits resources that could be spent on reducing poverty and realizing human rights, and perpetuates vast income inequality. While the rich benefit from this practice, the poor feel the negative impact on their standard of living, their unequal political power and the inferior quality of health and education services for themselves and their children A State that does not take strong measures to tackle tax abuse cannot be said to be devoting the maximum available resources to the realization of economic, social and cultural rights Among the recommendations made to States in the report are that they should: Hon James Shaw (Associate Minister of Finance), Transcript of First Reading of the Taxation (Neutralising Base Erosion and Profit Sharing Bill. 11 Report of the Special Rapporteur on extreme poverty and human rights, Magdalena Sepulveda Carmona, A/HRC/26/28 (22 May 2014) para Ibid. para Ibid. para

6 Conduct human rights assessments of fiscal policy periodically and with broad public participation, including analysis of the distributional consequences and tax burden borne by different income sectors and disadvantaged groups. 14 Ensure accessible channels or accountability and remedy for any negative human rights impact of fiscal policy, including by strengthening the capacity of the judicial system and national human rights institutions to address fiscal policy. 15 Enact clear legislation and regulations to ensure that companies domiciled in their territory respect human rights in their operations everywhere, including in tax planning practices The current UN expert on extreme poverty and human rights, Philip Alston, has also recommended that States reduce inequality by adopting taxation policies that are instrumental to achieving that aim. 17 Moreover, in 2016 the UN Committee on the Rights of the Child released a General Comment on public spending which directly addresses the need to tackle tax abuses as a means of mobilising resources to fulfil children s rights in compliance with the Convention. 18 A number of international organisations and regional human rights organisations have also published reports on fiscal policy and human rights. 19 Extraterritorial human rights obligations in relation to private actors 16. In 2017, the UN Committee on Economic, Social and Cultural Rights, made a definitive statement that corporate tax dodging and the policies which encourage it are 14 Ibid. para. 79 (e). 15 Ibid. para. 79 (k). 16 Ibid. para. 81 (b). 17 Report of the Special Rapporteur on extreme poverty and human rights, Philip Alston, to the 29 th session of the Human Rights Council, A/HRC/29/31 (26 May 2015), para 52, 18 Committee on the Convention on the Rights of the Child, General Comment No. 19 (2016) on public budgeting for the realization of children s rights (art. 4) CRC/C/GC/19 (20 July 2016), =en. 19 A 2013 International Bar Association report addressed tax abuses from the perspective of human rights law and policy F588DCDDFEA4 ; Inter-American Commission on Human Rights report addressed how fiscal policy impacts on poverty and human rights, Tax Justice Project recently urged the UN to coordinate a global effort to end offshore tax evasion and corruption, 6

7 incompatible with governments legal duties to guard against business-related human rights abuses, even when committed beyond their borders: Lowering the rates of corporate taxes with a sole view to attracting investors encourages a race to the bottom that ultimately undermines the ability of all States to mobilize resources domestically to realize Covenant rights. As such, this practice is inconsistent with the duties of the States Parties to the Covenant The Committee recommended that States address abusive tax practices by transnational corporations by combating transfer pricing practices and deepening international tax cooperation. 21 Furthermore, the Committee called on States to encourage business actors whose conduct they are in a position to influence to ensure that they do not undermine the efforts of the States in which they operate to fully realize the Covenant rights for instance by resorting to tax evasion or tax avoidance strategies in the countries concerned The UN treaty body committees, the bodies that oversee compliance with the international human rights treaties, are growing increasingly adept at holding governments directly to account for enabling corporate tax abuse in breach of their international human rights duties, and have directly called out the United Kingdom and Switzerland on their corporate tax policies. 23 The Taxation Bill is an encouraging step towards combating the government s extraterritorial human rights obligations Furthermore, despite the absence of a business and human rights plan in New Zealand, the Taxation Bill is consistent with the government s obligations under the 20 General comment No. 24 (2017) on State obligations under the International Covenant on Economic, Social and Cultural Rights in the context of business activities (10 August 2017) para Ibid. para Ibid. para CEDAW Concluding Observations on the combined fourth and fifth reports of Switzerland (UN doc. CEDAW/C/CHE/CO/4-5 (18 November 2016), para. 41 ( Undertake independent, participatory and periodic impact assessments of the extraterritorial effects of its financial secrecy and corporate tax policies on women s rights and substantive equality, and ensure that such assessments are conducted in an impartial manner with public disclosure of the methodology and finding.).; Committee on Economic, Social and Cultural Rights, Concluding Observations on the sixth periodic report of the United Kingdom of Great Britain and Northern Ireland (UN doc. E/C.12/GBR/CO/6, 14 July 2016, paras ( financial secrecy legislation and permissive rules on corporate tax are affecting the ability of the State party, as well other States, to meet their obligation to mobilize the maximum available resources for the implementation of economic, social and cultural rights. ). 24 See Maastricht Principles on Extraterritorial Obligations of States in the area of Economic, Social and Cultural Rights, Arts

8 OECD Guidelines for Multinational Enterprises, which include specific guidance for multinational corporations about taxation. Specifically, they provide that business enterprises domiciled in OECD should seek ways to prevent or mitigate adverse human rights impacts that are directly linked to their business operations, products or services by a business relationship, even if they do not contribute to those impacts. 25 The Bill also aligns with the UN Guiding Principles on Business and Human Rights ( UNGPs ), adopted by the UN Human Rights Council in The UNGPs require States to protect against human rights abuses by business enterprises and businesses to respect human rights, including an expectation that companies act with due diligence to avoid infringing on the rights of others While the Taxation Bill reflects a positive development in terms of the government meeting its international human rights obligations, continued international cooperation is essential. It is encouraging to see that New Zealand has signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, with its ratification currently being considered by the Committee. The Commission commends New Zealand s contribution to the OECD/G20 BEPS project and considers that ratifying the Convention would further reinforce New Zealand s international human rihgts obligations. Conclusion and Recommendations 21. Though not explicitly recognised as a legislative measure intended to meet the government s international human rights obligations, the Taxation Bill, by addressing the loss of substantial corporate revenue through the BEPS strategies of multinational corporations, is a positive step towards ensuring the maximum available resources to achieve the progressive realisation of fundamental human rights. The Commission supports the Bill and makes the following recommendations: Recommendation 1 The Commission recommends that the Finance and Expenditure Committee takes account of relevant human rights principles when considering the 25 library/oecd%20guidelines%20for%20multinational%20enterprises%20- %20short%20version%20for%20enterprises%20-PDF%20103%20KB.pdf

9 Taxation Bill, and in particular the report of the UN expert on extreme poverty and human rights on fiscal policy and human rights. Recommendation 2 The Commission recommends that the government ratifies the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting. 9

10 Annex 1 United Nations General Assembly Distr.: General 22 May 2014 Original: English A/HRC/26/28 Human Rights Council Twenty-sixth session Agenda item 3 Promotion and protection of all human rights, civil, political, economic, social and cultural rights, including the right to development Report of the Special Rapporteur on extreme poverty and human rights, Magdalena Sepúlveda Carmona * Summary In the present report, the Special Rapporteur on extreme poverty and human rights presents fiscal policy, and particularly taxation policies, as a major determinant in the enjoyment of human rights. Taxation is a key tool when tackling inequality and for generating the resources necessary for poverty reduction and the realization of human rights, and can also be used to foster stronger governance, accountability and participation in public affairs. She outlines relevant human rights obligations to guide and inform State revenue-raising practices, including the duty to use the maximum available resources for the realization of economic, social and cultural rights. She also analyses the questions of how the principles of non-discrimination and equality and the duty of international cooperation and assistance should inform taxation policies at the global and national levels. After assessing how revenue-raising policies and practices can be strengthened through a human rights-based approach, she makes recommendations for fiscal and tax policies that are grounded in human rights and can lead to poverty reduction, sustainable development and the realization of transformative rights. * Late submission. GE (E)

11 Contents Paragraphs Page I. Introduction II. Normative framework A. Rights to equality and to non-discrimination B. Right to self-determination C. Right to participation, accountability, transparency and access to information D. Specific obligations with regard to economic, social and cultural rights E. Obligations of international assistance and cooperation III. Tax: a critical tool for realizing human rights and tackling inequality A. Generating revenue for the realization of rights B. Achieving equality and tackling discrimination C. Strengthening governance and accountability IV. Strengthening revenue-raising through a human rights-based approach A. Widening the tax base and improving efficiency B. Tackling tax abuse C. Reassessing corporate taxation contributions D. Broadening the contributions of the financial sector E. Ensuring sustainable use of natural resources while respecting rights F. Enhancing international assistance and cooperation V. Recommendations

12 I. Introduction 1. Fiscal policies are a critical tool that States can employ to comply with their international human rights obligations. They can play a major role in achieving equality, tackling discrimination, and strengthening governance and accountability, as well as combating poverty and funding development. 2. Revenue and expenditure are the two main instruments of fiscal policy. In policy and in practice, they are complementary and intertwined. Both functions are critical to realizing human rights, and human right norms apply to all aspects of fiscal policy. Given that government expenditure has been subject to a considerable amount of analysis from the perspective of human rights, however, the Special Rapporteur will focus on the revenueraising side of fiscal policy, in particular taxation. Although non-tax revenues are also important for most States, taxation is the primary source of public resource generation, besides being also the most sustainable and predictable source of financing for the provision of public goods and services In the present report, submitted pursuant to Human Rights Council resolution 17/13,,the Special Rapporteur aims to put a human face on debates about tax collection, tax structures and tax abuse. Although taxation policy may seem far removed from the daily problems of the poor, it in fact plays a major role in determining and adjusting levels of inequality in a society and in funding essential services, social protection and poverty reduction measures; it is therefore central to realizing the rights and defining the opportunities of people living in poverty. Mobilizing domestic resources is also a crucial step in the financing of the Millennium Development Goals and the emerging post-2015 sustainable development agenda, as well as in complying with existing commitments to make tax systems more propoor Human rights obligations do not prescribe precise taxation policies, given that States have the discretion to formulate the policies most appropriate to their circumstances. However, a wide range of international treaties, such as the International Covenant on Economic, Social and Cultural Rights and the Convention on the Rights of the Child, impose limits on the discretion of States in the formulation of fiscal policies. In order to ensure that States respect, protect and fulfil rights and to assist them in opening fiscal space towards the realization of human rights, fiscal policies must be guided by the obligations imposed by these treaties. 5. A State breaches its international obligation whenever its actions or omissions are not in conformity with a specifically determined conduct required of it by that obligation; 3 for example, actions or omissions that diminish public revenues by allowing large-scale tax evasion or tax structures that have a disproportionate impact on the poorest segments of the population could constitute violations of human rights obligations, such as the obligation to allocate the maximum available resources to the enjoyment of economic, social and cultural rights or to eliminate discrimination. 4 1 For example, in official development assistance, loans and borrowing, revenue from State-owned enterprises or sale of State assets, and rents, concessions and royalties from natural resource extraction. 2 See for example the Doha Declaration on Financing for Development (General Assembly resolution 63/239, annex), para See Official Records of the General Assembly, Fifty-sixth Session, Supplement No. 10 (A/56/10). 4 Committee on Economic, Social and Cultural Rights general comment No. 20 (E/C.12/GC/20). 3

13 6. The present report focuses mainly on the obligations of States as primarily responsible for human rights obligations. Business enterprises are, however, also crucial actors in the area of fiscal policy. United Nations treaty bodies have repeatedly reiterated their view that States should take steps to prevent violations of human rights outside of their territories as a result of the activities of business enterprises that are incorporated under their laws or that have their main seat or place of business under their jurisdiction. 5 For example, States should take measures to ensure that business enterprises that the State is in a position to regulate, including legal, accounting and other specialized firms that assist in tax abuse, do not participate in or facilitate tax abuse or illicit financial flows, given that they have a detrimental impact on the realization of economic, social and cultural rights Moreover, under the Guiding Principles on Business and Human Rights, 7 business enterprises also have a responsibility to respect human rights, which covers the full range of rights listed in the Universal Declaration of Human Rights, the International Covenant on Civil and Political Rights, the International Covenant on Economic, Social and Cultural Rights and the eight core conventions of the International Labour Organization (ILO) (principle 12). Business practices that avoid taxation may breach their responsibility to respect insofar as such actions have a negative human rights impact (principle 13) which indeed they may as will be further explored below. In addition, business enterprises that knowingly avoid paying tax are purposefully depriving countries of the resources they need to fulfil their human rights obligations. 8. In the present report, the Special Rapporteur explains the scope and content of human rights principles and obligations relevant to the formulation of revenue-raising policies. She elucidates the minimum requirements with which a State must comply in order to fulfil these principles and obligations. After clarifying the crucial functions of tax with regard to human rights, she examines different tax measures and practices from a human rights perspective. The Special Rapporteur concludes the report with recommendations for tax policies most beneficial for the enjoyment of human rights. 9. In order to prepare the report, the Special Rapporteur addressed a questionnaire to States and other stakeholders in which she requested information on their national fiscal policies. 8 The Special Rapporteur also convened an expert meeting, in collaboration with the Friedrich Ebert Foundation (Geneva), the Center of Concern, Christian Aid and MISEREOR, hosted by the Office of the United Nations High Commissioner for Human Rights on 16 and 17 September The Special Rapporteur expresses her gratitude to all States that submitted information, and to the experts, United Nations agencies and civil society organizations that supported this process and assisted in the preparation of the report, in particular the Center of Concern, the Center for Economic and Social Rights and other members of the Righting Finance Initiative. 5 See CRC/C/KOR/CO/3-4, E/C.12/DEU/CO/5 and CCPR/C/DEU/CO/6. 6 Maastricht Principles on Extraterritorial Obligations of States in the area of Economic, Social and Cultural Rights Principles, principles 24 and A/HRC/17/31. 8 Questionnaire responses were received from Argentina, Azerbaijan, Bosnia and Herzegovina, Burkina Faso, Chile, Ecuador, Estonia, Finland, Germany, Greece, Iraq, Lebanon, Lithuania, the Netherlands, Paraguay, Portugal, the Republic of Moldova, Senegal, Spain, Swaziland and Ukraine. Civil society organizations also responded to a similar questionnaire. All responses are available on the webpage of the mandate holder at 4

14 II. Normative framework 11. International human rights law sets obligations for States to respect, protect and fulfil human rights in all the ways that they exercise their functions, and the design, implementation and monitoring of revenue-raising policies is no exception. In the section below, the Special Rapporteur examines how a State s use of its revenue-raising power has a direct impact on its ability to comply with international human rights obligations, in particular relating to the economic, social and cultural rights of people living in poverty. A. Rights to equality and to non-discrimination 12. States have an obligation to guarantee that human rights are exercised without discrimination of any kind. This is a fundamental pillar of international human rights law and an immediate obligation of all States The rights to equality and to non-discrimination should be respected in all revenueraising policies State. Thus, any action or omission by the State in this area must not discriminate, either directly or indirectly, 10 against any individual or group (including on the basis of race, gender, disability or economic and social status) or perpetuate discrimination and inequality The discrimination prohibited under international human rights law includes any distinction, exclusion, restriction or preference or other differential treatment that has the intention or effect of nullifying or impairing the recognition, enjoyment or exercise, on an equal footing, of all rights. 12 Not all differences in treatment, however, constitute discrimination. A distinction is compatible with the principles of equality and nondiscrimination if the differentiation is reasonable and objective, and pursues a legitimate aim under human rights instruments, and there is a reasonable relationship of proportionality between the means employed and the aim sought Moreover, in some circumstances, these rights require States to take affirmative action or special measures to prevent, diminish and eliminate the conditions and attitudes that cause or perpetuate systemic or de facto discrimination. 14 These measures should not be considered discriminatory because they address structural disadvantages and encourage the equal enjoyment of human rights. 16. In revenue collection, compliance with these rights may require States to set up a progressive tax system with real redistributive capacity that preserves, and progressively increases, the income of poorer households. It also implies that affirmative action measures 9 See, for example, the preamble to the Charter of the United Nations and Arts. 1, para. 3, and 55; Universal Declaration of Human Rights, art. 2, para. 1; International Covenant on Economic, Social and Cultural Rights, art. 2; International Covenant on Civil and Political Rights, arts. 2 and 26; International Convention on the Elimination of All Forms of Racial Discrimination, art. 1; Convention on the Elimination of All Forms of Discrimination against Women, art. 1; and Convention on the Rights of Persons with Disabilities, art E/C.12/GC/20, para Ibid., para Ibid., para. 7, and Official Records of the General Assembly, Forty-fifth Session, Supplement No. 40 (A/45/40), annex VI, Human Rights Committee general comment No. 18, paras. 6 and E/C.12/GC/20, para. 7; Human Rights Committee general comment No. 18, para See for example Convention on the Elimination of All Forms of Discrimination against Women, art. 4, para. 1; International Convention on the Elimination of All Forms of Racial Discrimination, art. 2, para. 2; Human Rights Committee general comment No. 18, para.10; and E/C.12/GC/20, para

15 aimed at assisting the most disadvantaged individuals and groups that have suffered from historical or persistent discrimination, such as well-designed subsidies or tax exemptions, would not be discriminatory. In contrast, a flat tax whereby all people are required to pay an equal proportion of their income would not be conducive in achieving substantive equality, as it limits the redistributive function of taxation. 17. Revenue collection is a critical tool for States in tackling and redressing systemic discrimination and ensuring equal access to economic, social and cultural rights. In order to redress structural inequalities, including gender inequalities, States should evaluate the differential impact of existing and proposed fiscal policies on different groups, in particular those who suffer from structural discrimination. For example, certain tax arrangements that directly or indirectly disincentivize women s participation in the labour force or promote the male bread-winner family model could threaten women s enjoyment of human rights. 15 Meanwhile, a State with a very narrow tax base or that fails to tackle tax evasion may result in its inability to fund social protection or adequate and accessible public services, a situation that is likely to create or entrench inequalities. B. Right to self-determination 18. The right to self-determination, enshrined in both the International Covenant on Economic, Social and Cultural Rights and the International Covenant on Civil and Political Rights, expressly encompasses the rights of peoples (not the State or Government) to freely dispose of their natural wealth and resources. 16 Considering that many natural resources are finite and non-renewable, this right needs to be protected with special care, taking into account the rights of future generations. 17 At the very least, a State s population has a right to enjoy a fair share of the financial and social benefits that natural resources can bring. This requires ensuring participation, access to information and high standards of transparency and accountability in decision-making about the use of natural resources. Where indigenous peoples are involved, States have additional and specific obligations, including ensuring free, prior and informed consent in any decisions regarding the use of their lands The right to self-determination also underlines the rights of all peoples to freely pursue their economic, social and cultural development and the duty of States to respect that right. This has clear implications for activities that undermine the ability of other States to raise revenue and fund their own development. C. Rights to participation, accountability, transparency and access to information 20. The rights to participation, accountability, transparency and access to information are critical human rights principles that also apply to fiscal policies and must be implemented throughout the policy cycle, from design of budgets and tax codes, allocation of expenditure, through to monitoring and evaluation of impact. 15 See Convention on the Elimination of All Forms of Discrimination against Women, arts. 5 and See also the Declaration on the Right to Development, art. 1, para See for example A/HRC/24/ See Declaration on the Rights of Indigenous Peoples, arts. 10 and 32, and ILO Indigenous and Tribal Peoples Convention, 1989 (No. 169). 6

16 21. Many human rights treaties emphasize the right to participation. 19 In particular, article 25 of the International Covenant on Civil and Political Rights includes the right of all people to take part in the conduct of public affairs, a right that covers all aspects of public administration and the formulation and implementation of policy at international, national, regional and local levels. 20 Effective and meaningful participation is in turn dependent on the right to seek, receive and impart information Decision-making processes regarding tax and public revenues must therefore be based on full transparency and the broadest possible national dialogue, with effective and meaningful participation of civil society and those who will be directly affected by such policies, including people living in poverty. 22 Fiscal policies should be subjected to the scrutiny of the population during design, implementation and evaluation stages, with the various interests transparently identified. This will require capacity-building and fostering fiscal literacy in the population. The population should have access to all relevant information in an accessible and understandable format, 23 and inclusive mechanisms should be put in place to ensure that they are actively engaged in devising the most appropriate policy options. 24 Owing to the asymmetries of power, expertise and interests in this debate, specific measures should be taken to ensure equal access and opportunities to participate, particularly for people living in poverty To ensure accountability, fiscal policies, including, for example, tax incentives granted to foreign investors, should be open to judicial oversight, while public officials should be accountable for decisions that endanger the enjoyment of human rights. Accessible mechanisms for complaints and redress should also be put in place. D. Specific obligations with regard to economic, social and cultural rights 24. Although obligations with regard to economic, social and cultural rights are primarily enshrined in the International Covenant on Economic, Social and Cultural Rights, provisions regarding such rights are also included in the Convention on the Rights of the Child, the Convention on the Elimination of All Forms of Discrimination against Women and the Convention on the Rights of Persons with Disabilities. 25. States must devote the maximum available resources to ensure the progressive realization of all economic, social and cultural rights as expeditiously and effectively as possible, 26 even during times of severe resource constraints, whether caused by a process of adjustment, economic recession or other factors. 27 This principle should guide the State s decisions and priorities in generating, mobilizing and allocating resources in order to permit the realization of human rights. The obligation of progressive realization independent of 19 See A/HRC/23/ See Human Rights Committee general comment No. 25 (CCPR/C/21/Rev.1/Add.7). 21 Universal Declaration of Human Rights, art. 19; International Covenant on Civil and Political Rights, art See A/HRC/17/34/Add.2, paras Human Rights Committee general comment No. 34 (CCPR/C/GC/34), para A/HRC/23/ Idem. 26 International Covenant on Economic, Social and Cultural Rights,art. 2, para. 1. See also the Convention on the Rights of the Child, art. 4, and the Convention on the Rights of Persons with Disabilities, art. 4, para Official Records of the Economic and Social Council, 1991, Supplement No. 3 (E/1991/23), annex III, Committee on Economic, Social and Cultural Rights, general comment No. 3. 7

17 economic growth also exists; it requires the effective use of available resources, 28 including potential resources that could be raised through reasonable efforts, such as taxation measures and international assistance and cooperation. 29 Other areas are also critical for mobilizing resources, including debt and deficit financing, monetary policy and financial regulation Although most provisions in the International Covenant on Economic, Social and Cultural Rights are considered subject to progressive realization, States that claim resource constraints have the burden of proof to show that every effort has been made to move towards the full enjoyment of economic, social and cultural rights as a matter of priority, and that they are truly unable rather than unwilling to meet these obligations. 31 This includes an obligation to actively seek assistance through international cooperation Moreover, States parties to the International Covenant on Economic, Social and Cultural Rights have an immediate core obligation to ensure the satisfaction of, at the very least, minimum essential levels of all economic, social and cultural rights. 33 These minimum essential levels are entitlements that are crucial to securing an adequate standard of living through basic subsistence, essential primary health care, basic shelter and housing and basic forms of education for all members of society. 34 Even during times of severe resource constraints, States must demonstrate that every effort has been made to use all resources that are at its disposal, including resources that could potentially be collected through taxation, or tackling tax evasion and other illicit financial flows, in an effort to satisfy, as a matter of priority, minimum essential levels The obligation to progressively realize economic, social and cultural rights entails a prohibition of deliberate retrogression, namely, of measures that directly or indirectly lead to backwards steps in the enjoyment of rights. There is a strong presumption that such measures are in violation of human rights standards. States may only adopt such retrogressive measures if they can demonstrate that they have carefully considered all alternatives, including revenue-raising ones, and that they are duly justified by reference to the totality of the rights in the International Covenant on Economic, Social and Cultural Rights, in the context of the full use of the maximum available resources. 36 The 28 Limburg Principles on the Implementation of the International Covenant on Economic, Social and Cultural Rights, art International Covenant on Economic, Social and Cultural Rights, art. 2, para Excessive debt servicing payments may, however, also undermine the ability of debtor countries to realize rights. See Radhika Balakrishnan, Diane Elson, James Heintz and Nicholas Lusiani, Maximum Available Resources & Human Rights: Analytical Report, Center for Women s Global Leadership, June See also the reports of the Independent Expert on the effects of foreign debt and other related international financial obligations of States on the full enjoyment of all human rights, particularly economic, social and cultural rights. 31 See for example Committee on Economic, Social and Cultural Rights general comment No. 14 (E/C.12/2000/4), para See the Guiding Principles on Poverty and Human Rights, para. 94; A/45/40, annex VI, para. 10; Official Records of the Economic and Social Council, 1995, Supplement No. 3 (E/1995/22), annex IV, Committee on Economic, Social and Cultural Rights general comment No. 5, para. 13; and E/C.12/1999/4, general comment No. 11, para E/1991/23, annex III, para Ibid. 35 E/C.12/2007/1, paras.4-6. See also Committee on Economic, Social and Cultural Rights general comments No. 3 (E/1991/23, annex III), para. 12, No. 12 (E/C.12/1999/5), para. 28, and No. 14 (E/C.12/2000/4), para Committee on Economic, Social and Cultural Rights general comment No. 3 (E/1991/23, annex III) para. 9. See also general comments No. 13 (E/C.12/1999/10), para. 45, No. 14 (E/C.12/2000/4), para. 8

18 compatibility of, for example, austerity measures (such as those that many States implemented in the wake of the 2008/09 financial crisis) with the Covenant would therefore depend partly on whether the State has sought revenue-raising alternatives before making cuts in areas that are important for ensuring the enjoyment of economic, social and cultural rights, such as cuts in public sector employment, public services or social protection. E. Obligations of international assistance and cooperation 29. States have a duty to provide international assistance and cooperation commensurate with their capacities, resources and influence, as established in Articles 55 and 56 of the Charter of the United Nations and in several international human rights treaties. Particularly important are the obligations of international assistance and cooperation enshrined in the International Covenant on Economic, Social and Cultural Rights (arts. 2, para. 1 and 1, para. 1), the Convention on the Rights of the Child (art. 4) and the Convention on the Rights of Persons with Disabilities (art. 32), on the basis of the recognition that some countries will not be able to achieve the full realization of economic, social and cultural rights if other countries in a position to assist do not do so. 30. As part of international cooperation and assistance, States have an obligation to respect and protect the enjoyment of human rights everywhere, which involves avoiding conduct that would foreseeably risk impairing the enjoyment of human rights by persons beyond their borders, and conducting assessments of the extraterritorial impact of laws, policies and practices States must refrain from any conduct that impairs the ability of another State to comply with its own human rights commitments. 38 Furthermore, they have an obligation to create an international enabling environment for the fulfilment of economic, social and cultural rights, including in matters relating to taxation. They should also coordinate with each other in order to cooperate effectively in the universal fulfilment of economic, social and cultural rights In this sense, providing an avenue for high-net-worth individuals and transnational corporations to evade tax liabilities (such as through the establishment of tax havens) could be contrary to obligations of international assistance and cooperation, because it can directly undermine the ability of another State to mobilize the maximum available resources for the progressive realization of economic, social and cultural rights. This could then obstruct the residents of that State from enjoying, for example, their rights to health, education or social security. 33. When acting as a member of an international organization, a State remains responsible for its own conduct in relation to its human rights obligations within and outside its territory. This includes identifying the possible human rights impact of measures agreed at the international level, including the impact on persons living in poverty. 40 Therefore, when a State makes decisions about loans as a member of an international financial institution, careful consideration of human rights obligations would mitigate against imposing conditions regarding fiscal policies that may jeopardize the human rights of the borrower 32, No. 15 (E/C.12/2002/11), para. 19, No. 17 (E/C.12/GC/17), para. 27, No. 18 (E/C.12/GC/18), para. 34, No. 19 (E/C.12/GC/19), para. 42 and No. 21 (E/C.12/GC/21), para Guiding principles on extreme poverty and human rights (A/HRC/21/39), para See Maastricht Principles (see footnote 6), art A/HRC/21/39, para. 61. See also Maastricht Principles, principle A/HRC/21/39, para

19 State s population or undermine that State s ability to use maximum available resources to realize economic, social and cultural rights. 34. In the past, it has been difficult to reach international agreement on tax cooperation owing to the powerful entrenched interests at play and the reluctance of States to cede any sovereignty on tax affairs. In the current status quo, however, certain States in particular low-income States and States with high debt levels or loans from international financial institutions have very limited sovereignty over their tax affairs. Indeed, their actions in this sphere are frequently constrained by wealthy countries, international financial institutions and business interests. Tax sovereignty is also undermined by competition for foreign investment between developing countries, creating a race to the bottom in terms of both corporate tax rates and incentives. 35. A contemporary interpretation of existing obligations of international cooperation and assistance should recast or redefine the outdated emphasis on tax sovereignty to a more modern conception of international tax cooperation in a globalized and interdependent world economy (see paras. below). 41 III. Tax: a critical tool for realizing human rights and tackling inequality 36. Taxation is critical to finance development and can be a powerful tool for stimulating poverty reduction. Higher and more stable revenues result in increased sustainable investment in public services, infrastructure and other development needs, and improve competitiveness of economies over the long term. Taxes are not the only source of government revenue, but they are arguably the most important, because they combine three critical functions, addressed below: (a) the generation of revenue for the realization of rights; (b) achieving equality and tackling discrimination; and (c) strengthening governance and accountability. 37. Certainly, poverty reduction is more effective and sustainable when combined with investments in areas such as education, health and food security. These areas are also critical for ensuring the realization of rights in the present and future and for overcoming the intergenerational transmission of poverty. 38. Taxation policies also have the potential to reduce income and wealth inequalities, depending on their level and progressiveness. 42 This is a crucial goal, because inequalities have been shown to slow the pace of poverty reduction, create intergenerational poverty traps through uneven access to health and education, and increase the vulnerability of societies to economic crises. 43 Some research has shown that improvement in income 41 See for example the advisory opinion of 21 June 1971 on Legal Consequences for States of the Continued Presence of South Africa in Namibia (South West Africa) notwithstanding Security Council resolution 276 (1970), ICJ Reports 1971, p. 16, para Every year from 1985 to 2005, direct income taxes and transfers reduced the average Gini coefficient of income inequality in 25 countries of the Organization for Economic Cooperation and Development by about one third. See Francesca Bastagli, David Coady and Sanjeev Gupta, Income Inequality and Fiscal Policy, IMF Staff Discussion Note, 28 June 2012, p.11. See also ECLAC, Time for equality: closing gaps, opening trails, 2010, p See Department of Economic and Social Affairs, Inequality Matters: Report on the World Social Situation 2013, pp , and Fiscal Policy and Income Inequality, IMF Policy Paper, 23 January